Wallace owns a construction company that builds both commercial and residential buildings.He contracts to build a residential building for $800,000, and for which he is eligible to use the completed contract method of accounting.In the current year for regular income tax purposes, Wallace does not recognize any gross income on the contract.Under the percentage of completion method, the income recognized under the contract would have been
$60,000.Wallace's AMT effect is:
A)$0.
B)$60,000 negative adjustment.
C)$60,000 positive adjustment.
D)$800,000 positive adjustment.

Question

Quizplus · Accepted Answer

Under the completed contract method, income is not recognized until the contract is completed. Therefore, there is no income recognized for regular income tax purposes in the current year. However, under the percentage of completion method, income is recognized based on the percentage of the contract that has been completed. Since $60,000 of income would have been recognized under the percentage of completion method, the AMT adjustment is a positive adjustment of $60,000.

Wallace Owns a Construction Company That Builds Both Commercial and Residential